"After US activist investor ValueAct built a near-5% stake in Smiths Group, Credit Suisse calculated a 1,500p-per-share break-up value for the aerospace engineer.
According to reports, ValueAct, an $18bn activist fund which has previously influenced the direction of US companies including Microsoft, Valeant Pharmaceuticals and Motorola, built the stake on Monday, less than a week after its 5.5% stake in Rolls-Royce came to light.
Credit Suisse pointed out that ValueAct becomes the third activist on the Smiths shareholder register, which already includes Harris Associate, with a 7.4% stake, and RWC, with 1.4%, making a likely combined holding of over 10% by activists.
Given the conglomerate corporate structure of Smiths Group, the Swiss bank felt a potential break-up valuation scenario was appropriate, calculating the sum of the parts of the organisation.
"In this scenario, we value all divisions except John Crane at peer average multiples plus a 20% premium while John Crane is valued at an average UK Industrials multiple," analysts wrote, adding the view that a John Crane disposal was unlikely given its asbestos liabilities.
Also within the break-up scenario, it was assumed that £800m of the disposal proceeds would be contributed into the pension fund as a remediation on top of an assumed circa-£800m of net debt and £150m John Crane asbestos liability.
The multiples implied for the divisions in this scenario are 17.8 times 2016 EV/EBITA for the medical arm, which is consistent with recent take-out multiples of Covidien and CareFusion, 16.1 times for the Detection business, 13.4 times for Interconnect and 13.8 times for Flex Tek.
Taking the above scenario and assuming current balance sheet value for pension deficit "would increase valuation to circa 17,500p per share"."
I assume the SP figure in the last sentence should be 1750p.
I think you're being a little too complimentary about our man from GKN.
Look at their share price over the last year £3.60 down to £3.20 and that with economic growth !
Not sure number of employees is a good guide either, that could suggest poor productivity / inefficiency.
I think rather than a crisp man, he'll turn out to be a mini cheddar, and moved on quickly.
Other than good old Roger Hurn, appointments have always come from outside, which is obviously the best route for fresh ideas.........................................................................................
provided you get the right man and not just purely down to salary package.
"he has been replaced by an engineering light weight"
A little harsh perhaps, m8? He seems to have had a good reputation at GKN (31,000 employees in his bit of it, compared to 23,000 in the whole Smiths Group) and has a pretty impressive and wide ranging CV, including being a NED at Morgan Advanced Materials (yes, I know, that only means he turns up four times a year for a slap up meal and to collect his fee).
My concern, if I had any, would be that there may be some bruised egos among the top bonobos at Smiths who object to having an outsider parachuted in over their heads. But perhaps they're all useless I dunno.
Totally agree with you about Bowman. The man has been a grave disappointment after the promise he showed while at Scottish Power and Allied Domecq. Let him leave right now and shut the door behind him on his way out.
Lets face it Smiths has been treading water ever since PB got involved.
Everybody thought he was brought in to break up the conglomerate, but unfortunately it turns out he was just winding down to retirement - complete & utter failure.
And now he has been replaced by an engineering light weight, so some corporate action is urgently needed to prevent further shareholder value wilt.
As for detection, they would like to get rid as poor management decisions continue unabated, - with more garden leave on the cards !
Full year Smiths results will be uninspiring due to poor last quarter performance, but cash generation remains excellent.
I correct your correction, m8 ... it should be Smiths' businesses or, arguably just Smiths businesses as you had it originally.
Although Smiths grew out of S.Smith & Son, a clockmaker, the company now calls itself Smiths Group, without any apostrophe. One can question the grammatical accuracy of that spelling but it is what it is.
Perhaps some head office bumf shuffler back in the day thought that it looked better or more modern or some such tosh without the apostrophe. Who knows? Few care but among those who do care is
"Detection - smaller business with tiny margins of 4.8%"
I wonder why that is? Every time I pass through an airport Smiths' detection kit appears to be the, erm, detection kit of choice. I suppose people like Siemens are in that biznay too but it still seems surprising that it's not more profitable.
LK -- I remember looking at this some time back but the old grey cells hadn't registered.
Of the 5 business units, non have real revenue growth in the last 5 years except Flextek and John Crane.
Of the units that have a margin edge, John Crane has been high at almost 25% but this is heavily exposed to the oily and gas industries so you can expect 5 years of pain in this division - quick assumption.
Medical is also close to 25% but the revenue has declined over the last 5 years -- is this because they don't know how to sell it or is it a competition problem?
Detection - smaller business with tiny margins of 4.8% and the revenue has declined over the last 5 years
Interconnect looks good, with 16% margins and the business is growing, but it's a smaller element in Smiths.
and Flextek is the smallest division but turns in good results.
Difficult to know what the new guy is going to do here, but they can't carry on with the major rump of the divisions flat or declining, can they?
Games -- There ends my fag packet analysis of Smiths. -time for coffee.
possibly so -- I'd guess it's really just these sharks looking in on a mismanaged company (RR and SMIN) and deciding there is fat on the table.
This just worked in my favour with Ebay and Carl Icahn who pretty much forced out the old CEO after he went against Icahn's proposal to split out PayPal. He lost and he's gone.
In that case it was a good decision as it's set PayPal free to grow faster than it's currently doing (20% a year).
Back to Smiths, I guess you would agree it's probably not that well managed and there are some real gems hidden in the product portfolio like the medical scanners etc. I'm no expert on Smiths and not a shareholder, so can't properly judge it.
Interestin' that both Smiths and RR are in the midst of a recent change of Chief Executive. I wonder if that was one factor that attracted these ghastly Americans? And Shell pounced on BG just after a new CEO arrived.
Obviously not the City then................
Well this 'light weight' was well received...........................
At least the travel budget will fall now, surely.....................
The release of provisions at the Year End should provide PB with a sound finish to the year's results even with the faltering top line !
That combined with increased dividend makes SMITHS a Buy ! short term.
"Smiths Group plc is pleased to announce the appointment of Andrew Reynolds Smith as its new Chief Executive. He will join on 25 September 2015 . Andrew, 49, is currently Chief Executive of GKN Automotive,..."
Given that the share price has fallen by almost 5percent today against a FTSE drop of just over 1.5percent can we take it that those that know about such matters are singularly unimpressed with his appointment?
What JPM doesn't realize is that Management (so called) is the Problem.
All they're interested in is cost cutting and not growing the top line, ensuring their salary, bonus, share options, pension contributions etc are considerably more than they deserve
taking results achieved into consideration.
Take the 3 main divisions :
JC - now in decline
Medical - although showing progress this year, it is from a much lower base than should have been expected/achieved, seeing what it has done over the past 7 years.
Detection - Getting back under control but lost ground unlikely to be recouped any time soon.
Having said all that share price should be at least £12 (current market conditions / divi)
"Share in Smiths Group rose nearly 3% on Thursday after JPMorgan Cazenove reiterated its 'overweight' stance on the stock, pointing to close to 13% upside to its unchanged 1,280p price target.
"We believe the group is currently on track to deliver on our unchanged full year forecasts for 2015," the broker explained.
The US broker expects the new management to undertake a strategic review. The group is likely to remain an industrial conglomerate, albeit with increased focus on businesses/market segments where Smiths can generate faster than global GDP growth and premium returns, said JPM."
"By John C Burford, Author of Tramline Trading, and editor of MoneyWeek TraderIn these weekly articles, I will highlight a share that I believe has an interesting chart pattern. I am primarily a technical trader and use the methods I have ..."
"The collapse in oil prices set a rather challenging scene for the rest of LSE:SMIN:Smiths Group's year, dampened further by a significant de-rating at the tail end of 2014. Despite its problems, the engineering conglomerate has risen 15% since ..."
PB ' Hi Rob, as you know we've had to let Peter go, results recently just haven't been good enough, so he is the sacrificial lamb. The BOD would like you to assume the position in the meantime, however we realize you aren't up to it, but coming out of the most chaotic division where financial control has obviously been lacking, you won't be missed.
"Fuel for growth, Engineered for growth,
call it what you like"
Yes, it's pretty lame, ain't it? Reminds me of one of Shell's slogans back in the day "Oiling the wheels of progress" ... Groan!
Still, Medz didn't look too bad, and them Abu Dhabi boys are playing the white man by ponying up for what sounds like an eye-popping number of them X Ray vision machines at the airport. Reminds me of that bit in one of the "Airplane" movies where the stews walk through the machine in their uniforms with predictable joy for the screen watchers off to one side.
Revenue per share 2010 --- 2337
Revenue per share 2014 --- 3167
So hear is a company that has grown it's revenue over 5 years by 35%, yet it's profit per share is a third what it was and it's operating margins are less than a quarter.
I'd say this is a value destructor and potentially on a fairly gargantuan scale.
Games -- I might be misinterpreting it in some way, but it's a munter in my book and selling it before the Scottish elections forced me to look deeper into the numbers and I decided not to buy it back just because it has a high dividend today.
" I've had 2 munters this year, I'm trying to avoid a 3rd."
Hmmm. It depends how one defines a munter. I've got three companies that have gone down by more than 25% in 2014 ... BG, BHP, and this puppy.
If someone had said to me, at the start of 2014, "LK, three of your companies will go down by more than 25% in 2014", I doubt that I would have picked those three. Fortunately I did not have a massive weighting in any of them three, so the overall damage to the wallet was not too bad when set off against those companies which rose by more than 25%.
Ivor, you are right of course, a rising tide lifts all boats.
It's only when the tide goes out --- bla bla -- Warren Buffet(t)
I'm interested in boats that jump up out of the water. SMIN isn't that boat I don't think.
The share price is not in a bad range and it doesn't look overpriced, but the business is drifting and in many of the divisions, it's a downward drift.
Games -- I've had 2 munters this year, I'm trying to avoid a 3rd.
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